Kenyan President Uhuru Kenyatta has signed a new law to control banks from raising interest rates beyond a specified rate set by the Central Bank, his office said on Wednesday.
The Kenyan President signed the Banking (Amendment) Bill, 2015, despite the opposition by local banks.
The Bill intends to regulate interest rates that are applicable to bank loans and deposits, capping the interest rates that banks can charge on loans and must pay on deposits.
President Kenyatta said the law was passed in line with the Constitution of Kenya.
The President said he held talks with several people since receiving the Bill. “I have consulted widely and it is clear to me from those consultations that Kenyans are disappointed and frustrated with the lack of sensitivity by the financial sector, particularly banks.”
“These frustrations are centred around the cost of credit and the applicable interest rates on their hard–earned deposits. I share these concerns,” President Kenyatta said.
“This is the third time that the National Assembly is attempting to reduce interest rates to affordable levels,” the President said in a statement.
While efforts to regulate the interest rates were unsuccessful in the previous two instances, the President regretted dialogue and promises of change prevailed and banks avoided the introduction of these caps.
“In those instances, banks failed to live up to their promises and interest rates have continued to increase along with the spreads between the deposit and lending rates.”
State House said despite having one of the most efficient and effective financial markets, Kenya has one of the highest returns-on-equity for banks in the African continent.
He said the banks need to do more to reduce the cost of credit and ensure that the benefits of the vibrant financial sector are also felt by their customers.
“I have assented to the Bill as presented to me. We will implement the new law, ” the President said.
The President said he was aware of the difficulties the new act of parliament would present, which include credit becoming unavailable to some consumers and the possible emergence of unregulated informal and exploitative lending mechanisms.
“We will closely monitor these difficulties, particularly as they relate to the most vulnerable segments of our population.”
Meanwhile, President Kenyatta said the Government will also accelerate other reform measures necessary to reduce the cost of credit and create the opportunities that will move the economy to greater prosperity.
